SEC News Digest

ENFORCEMENT PROCEEDINGS

Initial Decision Ordering Aaron Tsai Barred From Associating With Any Broker or Dealer Declared Final

The Commission has declared final the initial decision of an administrative law judge barring Aaron Tsai from associating with any broker or dealer. The initial decision found that Tsai had been permanently enjoined on April 4, 2005, against violating the registration provisions, Section 5 of the Securities Act of 1933 and ordered to pay disgorgement of $4,464 plus prejudgment interest and a civil penalty of $4,464. SEC v. Surgilight Inc., No. 6:02 cv 431 (M.D. Fla. Apr. 4, 2005). On March 1, 2010, Tsai was again enjoined against violating the Securities Act Section 5, and against violating the reporting provisions, Exchange Act Sections 13(d)(1) and 16(a) and Rules 13d 1(a) and 16a 3. SEC v. Sierra Brokerage Servs., Inc., 608 F. Supp. 2d 923 (S.D. Ohio 2009). In addition to being enjoined, Tsai was ordered to pay disgorgement of $250,000 plus prejudgment interest. The law judge found that Tsai's participation in the sale of unregistered shares to the public on the Over the Counter Bulletin Board, led to the harm of investors and the marketplace and netted him and his fellow defendants ill gotten gains of over $3 million.

Aaron Tsai has resided in Taiwan since 2002. Starting in 1996 through 2000, Tsai formed 101 "blank check" public shell corporations. From December 1998 through September 1999 and from July 2000 through October 2001, Tsai was associated with broker dealers registered with the Commission. He was also president and owner of two registered broker dealers. (Rel. 34-63142; File No. 3 13835)

In the Matters of Office Depot, Inc., Stephen A. Odland, and Patricia A. Mckay, CPA

The Securities and Exchange Commission today announced enforcement actions against Office Depot, Inc. and two executives for violating or causing violations of fair disclosure regulations when selectively conveying to analysts and institutional investors that the company would not meet analysts' earnings estimates. The SEC also charged Office Depot with unrelated accounting violations.

Regulation FD requires that when issuers disclose material nonpublic information, they must make broad public disclosure of that information. The SEC's orders find that as they neared the end of Office Depot's second quarter for 2007, CEO Stephen A. Odland and then-CFO Patricia A. McKay discussed how to encourage analysts to revisit their analysis of the company. Office Depot then made a series of one-on-one calls to analysts. The company did not directly state that it would not meet analysts' expectations, but rather this message was signaled with references to recent public statements of comparable companies about the impact of the slowing economy on their earnings. The analysts also were reminded of Office Depot's prior cautionary public statements. Analysts promptly lowered their estimates for the period in response to the calls. Office Depot did not regularly initiate these types of calls to all analysts covering the company.

Office Depot agreed to settle the SEC's charges without admitting or denying the findings and allegations, and will pay a $1 million penalty. Odland and McKay also agreed to settle the Regulation FD charges against them without admitting or denying the findings, and will pay $50,000 each.

The SEC's administrative orders find that Odland, in an attempt to get analysts to lower their estimates, proposed to McKay that the company talk to the analysts and refer them to recent public announcements by two comparable companies about their financial results being impacted by the slowing economy. Odland further suggested that Office Depot point out on its calls what the company had said in prior public conference calls in April and May 2007. McKay then assisted Office Depot's investor relations personnel in preparing talking points for the calls.

According to the SEC's orders, Odland and McKay were not present during the calls but were aware of the analysts' declining estimates while the company made the calls. They encouraged the calls to be completed. Office Depot continued to make the calls despite McKay being notified of some analysts' concerns about the lack of public disclosure among other things. Six days after the calls began, Office Depot filed a Form 8-K announcing that its sales and earnings would be negatively impacted due to a continued soft economy. Before that Form 8-K was filed, Office Depot's share price had significantly dropped on increased trading volume.

In addition to their $50,000 payments, Odland and McKay consented to the entry of administrative orders requiring them to cease and desist from causing any violations and any future violations of Regulation FD and Section 13(a) of the Exchange Act.

Unrelated to these Regulation FD violations, the SEC also charged Office Depot with overstating its net earnings in its financial statements for the third quarter of 2006 through the second quarter of 2007 as a result of accounting violations. Office Depot prematurely recognized approximately $30 million in funds received from vendors in exchange for the company's merchandising and marketing efforts instead of recognizing the funds over the relevant reporting periods in a manner consistent with Generally Accepted Accounting Principles.

Office Depot has agreed to settle the SEC's charges by consenting to the entry of an administrative order requiring it to cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-13 thereunder, and Regulation FD. Office Depot also consented to the entry of a judgment in a separate civil action that requires it to pay the $1 million penalty. [SECv. Office Depot, Inc., Civ. Action No. 9:10-cv-81239 (S.D. Fla.)] (LR-21703; AAE Rel. 3199); (In the Matter of Office Depot, Inc. - Rel. 34-63152, AAE Rel. 3198, File No. 3-14094; In the Matter of Stephen A. Odland - Rel. 34-63153, File No. 3-14095; In the Matter of Patricia A. McKay, CPA - Rel. 34-63154, File No. 3-14096)

SEC Obtains Temporary Restraining Order and Asset Freeze in Connection With Rhode Island-Based Offering

On October 19, the Securities and Exchange Commission filed an emergency enforcement action in federal district court in Rhode Island against David G. Stern, a resident of Newport, Rhode Island, and Online-Medical Registries, Inc. (d/b/a Online Medical Registries or OMR), his Rhode Island-based company. The Commission's complaint alleges that Stern and OMR defrauded at least 10 investors, who invested approximately $170,000 in the company. On October 20, the court granted the Commission's ex parte request for a temporary restraining order, asset freeze, and other relief.

The Commission's complaint alleges that since at least 2006, Stern offered and sold securities to investors in the form of stock in OMR. According to the complaint, Stern told investors that OMR had developed a technology that would help patients share their medical information with healthcare professionals in emergencies and at other crucial times. The complaint alleges that Stern falsely told investors that OMR had thousands of subscribers (when it only had approximately a dozen), that it had successfully tested its technology with a large hospital, that it would be partnering with a major technology company, and that as a result of the partnership, OMR shares would be worth multiple times their initial value. According to the complaint, Stern, who is a convicted felon and was disbarred from the practice of law, also lied to investors about his criminal background and disbarment. The complaint further alleges that Stern depleted virtually all of the investor funds he had received, largely by writing checks payable to himself and one of his affiliates.

The Commission's complaint alleges that Stern and OMR violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Honorable William E. Smith issued a temporary restraining order against further violations of the securities laws, an order freezing the assets of Stern and OMR, an order freezing all proceeds of the misconduct held by others, an order prohibiting the acceptance of additional investor funds, an accounting of assets, and an order prohibiting the alteration or destruction of relevant documents, as well as other relief. The Commission also seeks the entry of a permanent injunction, disgorgement of ill-gotten gains plus pre-judgment interest against Stern, OMR, and Michele Ritter (a relief defendant alleged to have received investor proceeds), as well as the imposition of civil monetary penalties against Stern and OMR. [SEC v. Online-Registries, Inc. and David G. Stern, as Defendants, and Michele Ritter, as Relief Defendant, Civil Action No. 10-CV-00433-S (D.R.I.)] (LR-21702)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by The Options Clearing Corporation (SR-OCC-2010-17) to enable clearing members that are parties to a Clearing Member Trade Assignment arrangement to authorize OCC to facilitate, on a non-guaranteed basis, settlement of commissions and fees relating to position transfers effected between the clearing members pursuant to their arrangement has become effective pursuant to Section 19(b)(3)(A)(iii) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of October 25. (Rel. 34-63120)

The Commission issued notice of filing and immediate effectiveness of proposed rule change (SR-NYSEArca-2010-91) filed by NYSE Arca pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 relating to amendment to NYSE Arca Equities Rule 8.500 to accommodate trading of trust units. Publication is expected in the Federal Register during the week of October 25. (Rel. 34-63129)

A proposed rule change filed by NYSE Amex (SR-NYSEAmex-2010-52) amending Commentary .02 to Rule 903G to permit certain FLEX options to trade under the FLEX trading procedures for a limited time on a closing only basis has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of October 25. (Rel. 34-63130)

A proposed rule change filed by NYSE Arca to establish a Pilot Program to list series with additional expiration months for each class of options opened for trading on the Exchange (SR-NYSEArca-2010-93) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of October 25. (Rel. 34-63133)

A proposed rule change filed by NASDAQ OMX PHLX relating to the $0.50 Strike Price Program (SR-Phlx-2010-149) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of October 25. (Rel. 34-63134)

A proposed rule change filed by the NASDAQ Stock Market to expand the $0.50 Strike Price Program (SR-NASDAQ-2010-131) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of October 25. (Rel. 34-63135)

A proposed rule change filed by NYSE Amex to expand the $0.50 Strike Price Program (SR-NYSEAmex-2010-98) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of October 25. (Rel. 34-63136)

A proposed rule change filed by NYSE Arca to expand the $0.50 Strike Price Program (SR-NYSEArca-2010-92) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of October 25. (Rel. 34-63137)

A proposed rule change filed by the Chicago Board Options Exchange to expand the $0.50 Strike Price Program (SR-CBOE-2010-092) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of October 25. (Rel. 34-63138)

Order Approving Accelerated Distribution of an Amended Options Disclosure Document

Pursuant to Rule 9b-1 under the Securities Exchange Act of 1934, the Commission approved the distribution of the Canadian Derivatives Clearing Corporation's amended options disclosure document (SR-ODD-2010-02) prior to the 30th day after the date when definitive copies of the amended disclosure document were filed with the Commission. Publication is expected in the Federal Register during the week of October 25. (Rel. 34-63125)

Proposed Rule Change

The National Securities Clearing Corporation filed a proposed rule change (SR-NSCC-2010-11) pursuant to Section 19(b)(1) of the Act that would enhance the Reconfirmation and Pricing Service (RECAPS) process, would modify RECAPS to run on a more frequent basis, and would rename RECAPS as the Obligation Warehouse service. Publication is expected in the Federal Register during the week of October 25. (Rel. 34-63126)

Approval of Proposed Rule Change

The Commission approved a proposed rule change submitted by NASDAQ OMX PHLX (SR-Phlx-2010-118) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to expand the $.50 Strike Price Program. Publication is expected in the Federal Register during the week of October 25. (Rel. 34-63132)

Accelerated Approval of Proposed Rule Change

The International Securities Exchange filed, and the Commission has approved on an accelerated basis, a proposed rule change (SR-ISE-2010-99) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 to adopt ISE Rule 421 relating to proxy voting. Publication is expected in the Federal Register during the week of October 25. (Rel. 34-63139)

JOINT INDUSTRY PLANS

Immediate Effectiveness of Amendment to the Options Order Protection and Locked/Crossed Market Plan

The proposed amendment to the Options Order Protection and Locked/Crossed Market Plan (4-546) filed by C2 Options Exchange pursuant to Section 11A(a)(3) of the Securities Exchange Act of 1934 to add C2 Options Exchange as a Participant has become effective. Publication is expected in the Federal Register during the week of October 25. (Rel. 34-63121)

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